Central Banks Influence Currency Rates

19 May, 2014

Tom Arnold

The last couple of weeks have been busy on the markets with central bankers dominating the headlines and causing most of the big moves we have seen.

Mark Carney seems to be everywhere at the moment – starting things off with a no change for the month on Bank of England policy, and then various interviews where he has been discussing when we might see interest rate rises and whether the housing market in the UK is simply doing well and growing, or going too quickly and heading for a crash.

Mario Draghi caused the biggest moves on the markets when he announced to a packed ECB press conference that the Euro was too strong and damaging the Eurozone’s recovery due to its limiting effect on exports, and that the ECB were very happy to intervene to correct this – the Euro dropped off heavily and has taken until today to see any correction back at all.

Janet Yellen gave a speech which was a little more positive towards future policy for the US economy, but much of the US Dollars improvement has come as a result of the ECB’s comments and the inevitable reaction that a weakening Euro causes a strengthening Dollar.

This week starts off with a very quiet day today, but then hots up quickly from tomorrow with quite a few critical releases, including some of the UK’s most important ones:

  • Tuesday: UK CPI Inflation, UK PPI Inflation, UK RPI Inflation
  • Wednesday: Bank of England Policy Meeting Minutes, UK Retail Sales figures, FOMC Policy Meeting Minutes
  • Thursday: Eurozone Manufacturing data, UK Mortgage figures, UK GDP, US Manufacturing data
  • Friday: German GDP, US Home Sales figures

All of these releases are likely to have some impact on the markets, with UK inflation and GDP key indicators of the UK economy’s continued growth and positive performance, and the Bank of England’s minutes likely to tell us a bit more about the future timing of interest rate rises. On the Euro side it is a quiet week although German GDP on Friday is likely to tell us quite a bit about what we can expect growth-wise for the whole zone. In the US eyes will be firmly fixed on the FOMC minutes for further clues as to whether the tapering of QE will continue which would potentially open the door for interest rate rises there next year.

Rates for buying currency from Sterling are close to recent highs and the data due could cause a tumultuous week ahead. Make sure you stay in close contact with your CI account manager to be kept informed of exactly what is happening and what impact it will have on your upcoming currency requirement.